PPG-525: Fundamental of Economics Assignment On "Economic Profile of Vietnam" Submitted to: Dr. Ahmed Tazmeen Department of Public Policy and Governance North South University Dhaka, Bangladesh Submitted by: Pukar Lamichhane ID # 1610001085 MPPG-6 th Batch Date of Submission: 31 st May, 2017 Economic Profile of Vietnam Page 0
Introduction: Vietnam is one of fastest-growing economies in South-east Asia with the aim to be a developed nation by 2020. 1 Vietnam borders China, Cambodia, and Laos and has total land area of 330,967 sq. km. Vietnam is 13 th populous country in the world. 2 The country also borders to Gulf of Thailand, Gulf of Tonkin and the South China Sea and thus has ample avenue to connect with the global value-chain. Vietnam is naturally resourceful country with metal mines; coals, offshore oil, forests, and hydropower. 3 The economically torn Vietnam from America-Vietnam War started to recover from mid-1980s. Particularly, the economic and political reforms initiated in 1986 focused the centrally planned economy popularly known as Doi Moi Policy in Vietnamese language, i.e. socialist-oriented market economy. Since then the country achieved remarkable growth in economic sector and transformed from one of the world s poorest nations to a lower middle-income country within a period of three decades (World Bank, 2017). The current economic status of Vietnam is analyzed through brief discussion on macro-economic indicators below. Gross Domestic Product (GDP) and Economic Growth: The economy of Vietnam has notably high growth after 2000. The nominal GDP in Vietnam was worth 193.60 billion US dollars in 2015 and represents 0.31 % of the world economy. The contribution of Service sector, industry and agriculture in the GDP of Vietnam is 44%, 37%, and 19% respectively. Similarly, the GDP growth rate of Vietnam was 6.7% in 2015. Moreover, despite of global economic crises and uncertainties during 2008, the country maintained the GDP growth of 6.4 % in average in the first decade of 21 st century. That is why; the economy of Vietnam is deemed to be healthy one. The resilient domestic demand and export oriented economy are recognized as the fundamental drivers of this economic growth (World Bank, 2017). The breakthrough of Vietnamese economy was after 2001, when the country became the member of WTO and reaffirmed its commitment to financial liberalization and international integration. The structural reforms implemented then-after helped to modernize the economy and generate competitive export-driven industries. Vietnam's membership in ASEAN Free Trade Area (AFTA) and, 1 http://www.bbc.com/news/world-asia-pacific-16567315 2 United Nations Statistics Division, 2017 3 http://www.economywatch.com/world_economy/vietnam/ Economic Profile of Vietnam Page 1
interestingly, entry into the US-Vietnam Bilateral Trade Agreement led to rapid changes in the trade and economic regimes. 3 Furthermore, Vietnam's economic development is manifested through the remarkable achievement in reducing poverty and improving social outcomes. The people living under the line of extreme poverty in Vietnam are reduced to less than 3 % by 2014 and 40 million people escaped poverty since 1993. Similarly, Vietnam has made significant advances in the field of health and education. Life expectancy at birth has reached to 76 years. Furthermore, more than 61 % have access to clean water compared to only 17 % two decades earlier. Above all, presently, 99 % of the population has access to electricity (World Bank, 2017). Unemployment: Likewise, the unemployment rate in Vietnam is stable and very low over the past decade despite of having the huge population (92.7 million in 2016) 4. The unemployment rate in Vietnam is recorded to be 2.11 % in the 4 th quarter of 2016. The country experienced unemployment rate of 2.30 % in average from 1998 until 2016, reaching an all time high of 4.50 % in the 4 th quarter of 1998 and a record low of 1.63 % in 2 nd quarter of 2014, thus, indicating a good health-economy and labor-market conditions. Interestingly, Vietnam experience downward trend in labor force participation rates since youths are spending more years in school and adults are taking earlier retirement. However, a large component of total employment falls into the category of being vulnerable and lack to have a decent work. In addition, there has been a shift in labor market due to rise in employment in the industrial and service sector whereas there is decrease in agricultural sector. Nonetheless, the issue of unemployment in Vietnam can be overcome by increasing investment and planning the process of industrialization cautiously so as to make it employment oriented (Pincus, 2015). GDP Deflator, Consumer Price Index (CPI), and Inflation: On the other hand, the GDP deflator in Vietnam is in escalating trend since 1985 until 2015 with average index point of 95.14. However, it decreased for the first time in 2015 (145.80) since 1985, as compared to 2014 (146.07) which is the highest index point till 2015 (World Bank, 2017). Similarly, Consumer Price Index (CPI) for Vietnam is noted to be 105.86 in April 2017. The major constituents for the consumer price index in Vietnam are; food and drink services (36.12%), housing and 4 The General Statistics Office of Vietnam Economic Profile of Vietnam Page 2
construction materials (15.73 %), transport (9.37 %), household appliances (7.1 %), footwear (6.37 %) and others. The consumer prices in Vietnam increased by 4.3 % in April 2017 as compared to the same month last year. Although the health constitutes only 5 % of CPI, the upward pressure for current year's inflation came from health along with slight rise in price of housing and construction material, and transport while the cost of food fell by 0.54 %. Inflation Rate in Vietnam is noted to be only 0.88% in 2015 and averaged 6.61 % from 1996 until 2017, reaching an all time high of 28.24 % in August of 2008 and a record low (-2.60) % in July of 2000. 5 Conclusion: Vietnam's economy has balance amalgam of domestic demand and export oriented economy and is hugely supported by privatization and liberalization of the trade regime. The economy of Vietnam has remarkable growth averaging about 6 % over the past ten years which is also reflected in social outcomes, such as: poverty reduction, improvement in health and education, life expectancy, and accessibility to clean water and electricity. Similarly, Vietnam is successful to maintain the average unemployment rate of 2.30 % in last two decade that demonstrate healthier economy. However, there is apprehension of sustainability and quality of employment. Likewise, slowdown in labor force has caused decline in productivity which used to be one of the driver of GDP expansion. Similarly, CPI for Vietnam is 105.86 in April 2017 which is mainly determined by; food & drink services, housing & construction materials, transport, household appliances, and footwear. Inflation Rate in Vietnam is remarkably less (0.88% in 2015) with an average of 6.61 % in last two decade. Nonetheless, there remains challenge of equitable and inclusive economic growth and environment sustainability for Vietnam. Youth unemployment is another important policy issue for country like Vietnam where the labor force participation is not up to the mark. However, the Government of Vietnam continues to show commitment to reforms in order to promote sustainable economic growth. Vietnam s 2011 2020 Socio-Economic Development Strategy (SEDS) a 10 year strategy highlights the issues related to macroeconomic development. According to SEDS Vietnam can ensure its economic development by: promoting skills development, particularly for modern industry and innovation; improving market institutions, and further infrastructure development (World Bank, 2017). 5 TRADINGECONOMICS.COM Economic Profile of Vietnam Page 3
APPENDIX (Table1: Major economic indicators of Vietnam from 2001 to 2015) Major Economic Indicators Year 2001 2006 2011 2012 2013 2014 2015 GDP (current USD in bn) 35.29 66.37 135.5 155.8 171.2 186.2 193.6 GDP per capita (current $) 449 797 1,543 1,754 1,908 2,052 2,111 GDP growth (annual %) 6.2 7.0 6.2 5.2 5.4 6.0 6.7 GDP deflator 43 62.5 121.3 134.5 140.9 146.1 145.8 Consumer Price Index (Base 47.9 64.4 118.7 129.5 138.0 143.6 144.9 year, 2010 = 100) Inflation (annual %) -0.43 7.39 18.68 9.09 6.59 4.09 0.88 Unemployment, (% of total labor force ) 2.8 2.4 2.02 1.8 1.95 1.87 2.12 (Figure 1: GDP growth rate of Vietnam from 2001 to 2015) Source: World Bank, 2017 Economic Profile of Vietnam Page 4
(Figure 3: Unemployment rate of Vietnam from 2001 to 2015) Source: World Bank, 2017 (Figure 2: Inflation rate of Vietnam from 2011 to 2016) Economic Profile of Vietnam Page 5
References BBC News (January 13, 2017). Vietnam Country Profile. Available at: http://www.bbc.com/news/world-asia-pacific-16567315 [Accessed on 26th May, 2017] Economy Watch. (March 28, 2010). Vietnam Economy. Available at: http://www.economywatch.com/world_economy/vietnam/ [Accessed on 27th May, 2017] Pincus, J. (2015). Why Doesn't Vietnam Grow Faster? State Fragmentation and the Limits of Vent for Surplus Growth, Journal of Southeast Asian Economies, vol. 32, no. 1. The General Statistics Office of Vietnam. (2017). Available at: http://www.gso.gov.vn/default_en.aspx?tabid=766) [Accessed on 28th May, 2017] Trading Economics. (2017). Available at: https://tradingeconomics.com/vietnam/ [Accessed on 28th May, 2017] United Nations Statistics Division. (2017). Country Profile: Vietnam. Available at: http://data.un.org/countryprofile.aspx?crname=viet%20nam [Accessed on 26th May, 2017] World Bank. (2017). Overview: Vietnam. Available at: http://www.worldbank.org/en/country/vietnam/overview#1 [Accessed on 27th May, 2017] Economic Profile of Vietnam Page 6